Taxing the Digital Economy

“Proposals by the OECD aimed at addressing
the tax challenges of the digital economy could have
significant implications for New Zealand businesses and
consumers.”Peter Scott - KPMG’s
head of indirect tax services

The proposals draw
attention to the loss of GST revenue as the popularity of
online shopping grows with Kiwi consumers.

Among the
options canvassed by the OECD are the use of countries’
GST regimes to tax the digital economy and online sellers.
The UK is the latest European country to move to tax
cross-border internet sales at their domestic GST rate. The
US Senate has recently approved legislation for State
Governments to enforce collection of sales taxes by online
retailers based in other States.

“Businesses around
the world have been able to significantly increase their
market and sales to customers in foreign jurisdictions
through the use of online shopping. This has reduced the
local GST revenue as these supplies via the internet result
in little or no GST being collected. This presents a huge
challenge for our traditional GST collection system.”
says Scott.

The OECD suggests lowering or removing
customs exemptions for low value imported physical goods. In
New Zealand, there has been pressure from local retailers
for Government to reduce the GST exempt import threshold of
$400. This would satisfy the demands of “bricks and
mortar” store retailers but Peter Scott points out,
“There would be increased compliance costs for
businesses and greater administrative costs to the
Government.”

A New Zealand discussion document on
lowering the GST exempt import threshold was due late last
year, but has been deferred pending a wider review of BEPS
[Base Erosion and Profit Shifting] issues by New Zealand
officials.

“There is an obvious challenge in
enforcing compliance from non-resident suppliers and this
has been recognised by the OECD. Nevertheless, requiring
non-residents to charge and collect GST has been identified
by the OECD as the most viable option to protect GST
collections,” according to Peter Scott.

“The
reality is we are going to see some changes in New Zealand,
and around the world, to collect GST on internet sales. In
New Zealand, the challenge will be how quickly and
effectively any changes can be implemented without imposing
significant system and compliance
costs.”

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